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Stock Market Today: McDonald's and Under Armour Stocks Fall As Earnings Disappoint

By Demitri Kalogeropoulos – Jul 26, 2016 at 6:23PM

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Indexes ran in place ahead of an important monetary policy announcement from the Federal Reserve.

Stocks hardly budged on Tuesday as investors digested first-quarter earnings reports from some of the market's biggest companies and turned their attention to a key interest rate announcement by the Federal Reserve set for release on Wednesday afternoon.  

The Dow Jones Industrial Average (^DJI 0.45%) slipped by 19 points, or 0.1%, and the S&P 500 (^GSPC -0.03%) gained less than a point for no change:

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Data source: Yahoo! Finance.

As for individual stocks, first-quarter reports from McDonald's (MCD 0.63%) and Under Armour (UAA 0.21%) (UA 0.59%)sent both of those stocks lower.

McDonald's growth slowdown

McDonald's was the worst-performing stock on the Dow, dropping 4% following its Q2 earnings report. The fast-food titan posted its fourth consecutive quarter of positive comparable-store sales, but the pace of that growth is slowing. Comps were 3% globally, compared to 6% in the prior quarter as the key U.S. market's expansion slipped to 2% from 5%. 

Image source: McDonald's

Executives credited all-day breakfast and a value-focused McPick 2 promotion for keeping results churning higher despite "softening industry growth" during the quarter. "We're making steady progress on transforming our business to satisfy the needs of our customers around the world, despite a challenging environment in several key markets," CEO Steve Easterbrook said in a press release.

Operating income rose by 10% and outpaced revenue thanks to the burger chain's refranchising initiative. Mickey D's is selling off many locations to franchisees in order to lower its company-owned level down to just 5% from its current 20% mark. The transfers are raising cash and producing a steadier flow of franchise fees and rent, even if they pressure overall revenue figures.

Looking ahead, Easterbrook and his team aims to expand the all-day breakfast menu with popular additions like biscuit sandwiches, McMuffins, and McGriddles, beginning in the fall. Investors hope those improvements will help keep the positive growth momentum going into its second year.

Under Armour's lower profits

Under Armour was one of the S&P 500's biggest losers after its Q2 report failed to impress investors. Sales gains were healthy, with revenue spiking by 28% to mark UA's 25th consecutive quarter of 20% or better growth. The success was driven mainly by a 58% jump in footwear sales, but the retailer's core apparel category also contributed with a 19% bounce of its own. 

Image source: Getty Images.

International growth played a key role as well. The segment expanded by 72% and now represents 15% of the sales base. "The strong broad-based results [...] highlight the continued demand for the Under Armour brand around the world," CEO Kevin Plank said in a press release.

It wasn't all good news for investors, though. Gross profit margin continued its downward trend, ticking lower by nearly a full percentage point to 48% of sales. General expenses jumped, too, which pushed UA's operating margin down to 2% of sales from 4% a year ago. Most of that decline had to do with the recent liquidation of Sports Authority and should reverse itself in the coming quarters.

The company plans to keep investing in its international expansion while diversifying deeper into footwear and other complementary product categories. Those initiatives, plus a one-time hit from Sports Authority's bankruptcy, will mean that operating income only improves by about 8% in 2016, according to management's latest projection, compared to the 23% bounce it had targeted back in April. Still, UA's business is in good shape even if profit growth is likely to be constrained this year.

Demitrios Kalogeropoulos owns shares of McDonald's. The Motley Fool owns shares of and recommends Under Armour (A Shares). The Motley Fool owns shares of Under Armour (C Shares). We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

McDonald's Stock Quote
$275.00 (0.63%) $1.73
Under Armour (A Shares) Stock Quote
Under Armour (A Shares)
$9.67 (0.21%) $0.02
Under Armour (C Shares) Stock Quote
Under Armour (C Shares)
$8.48 (0.59%) $0.05
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$34,347.03 (0.45%) $152.97
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$4,026.12 (-0.03%) $-1.14

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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